The agency estimates that the system will report an incremental credit growth of 10.1-11 per cent or Rs 12-13 lakh crore in FY13.
Banks have high holdings in their investment portfolios of government securities, especially long-term securities, due to which rising bond yields are unfavorable from the profitability point of view.
The MTM (mark-to-market) deficit on the bond portfolio would be Rs 8,000-10,000 crore for public sector banks and Rs 2,400-3,000 crore for private banks, the report said.
ICRA Vice President said, “Despite these expected MTM losses, we expect the banks’ net profit to remain stable, given the expected growth of 11-12 per cent in their core operating profits in FY23, which is comparable to MTM losses. Will more than compensate.” Anil Gupta Told.
Gupta, however, said if the yields tighten going forward, there could be a gradual decline in net profit in FY13.
Incremental credit growth for banks remained fairly positive in Q1 FY23, in contrast to the general trend of negative incremental credit during that period in the past, adding that growth was supported across sectors.
With bond yields rising and reducing investor appetite for corporate bonds, corporate bond issuance remained at its lowest level in four years in Q1 FY23, prompting large borrowers to shift from debt capital markets to banks for their funding requirements. Inspired, it said.
The agency acknowledged that rising interest rates could further dampen credit demand, but expects the system to close FY13 with credit growth of up to 11 per cent against 9.7 per cent in FY12.
Rate transmission is expected to accelerate this cycle for banks as 43 per cent of floating rate loans of banks are linked to external benchmarks, it said, adding that 77 per cent of loans are floating for banks.
This will help improve operating profits of banks with a lag in upward revaluation of deposits and better credit growth, it added.
The slippage may continue at 2.5-2.7 per cent of standard advances in FY13 in FY13 on reducing bounce rates and overdue loans at most banks, the agency said. non-performing asset (NPA) ratio will further improve to 5.2-5.3 per cent by the end of March 2023.
“Despite improving headline asset quality numbers, stressed assets (net .) NPA and standard restructured loans) stood at 3.8 per cent of standard advances as on March 31, 2022, which is higher than the pre-covid level of 3.1 per cent,” Gupta said.
The agency said the incremental capital requirements for most public banks and large private banks are limited.
It kept its outlook for banks at ‘stable’ for FY13 on stable earnings, improving asset quality and capitalisation.